Taylor Marine Ltd v Taylor Marine Brokers (2005) Ltd HC Auckland CIV 2005-404-006115

[2007] NZHC 502

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IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

CIV 2005-404-006115

BETWEEN  TAYLOR MARINE LIMITED Plaintiff

AND  TAYLOR MARINE BROKERS (2005) LIMITED

First Defendant

AND  P J HULL

Second Defendant

AND  THE AUCKLAND MARITIME FOUNDATION

Third Defendant

Hearing:         15, 16, 17, 21, 22 November and 6 December 2006

Appearances: B P Henry for Plaintiff

E St John for First and Second Defendants

D G Hurd and R M McIlroy for Third Defendant

Judgment:      16 May 2007

JUDGMENT OF COOPER J

This judgment was delivered by Justice Cooper on

16 May 2007 at 3.00 p.m., pursuant to r 540(4) of the High Court Rules

Registrar/Deputy Registrar

Date:

Solicitors:

David Stone, 247 Pakuranga Highway, Pakuranga, Auckland

Palmer Macauley, PO Box 576, Kerikeri Shieff Angland, PO Box 2180, Auckland Copy to:

E St John, PO Box 105 270, Auckland

B P Henry, PO Box 4070, Auckland

D G Hurd, PO Box 2180, Auckland

TAYLOR MARINE LIMITED V TAYLOR MARINE BROKERS (2005) LIMITED AND ORS HC AK CIV

2005-404-006115  16 May 2007

Table of Contents

Para. No. Introduction [1]

The claims and issues  [3]

The plaintiff’s claim against the first and second defendants

(1)       Introduction  [21] (2)       Valid consent to assignment  [22]

(3)       Terms of consent agreed to by defendants         [30] (4)       Breach of clause 8.2(4)  [43] (5)       Breach of an implied term of good faith            [70]

(6)       Clause 8.3  [73] (7)       Outcome  [78]

The plaintiff’s claim against the third defendant  [79]

The counterclaim  [112] Result  [119] Costs  [121]

Introduction

[1]      The plaintiff in this proceeding seeks an order for specific performance by the first  and second defendants of an agreement  for the sale and purchase of a business.  It alleges that those parties wrongly purported to cancel the agreement.  If its claim against  them  fails,  then  it  seeks  damages  against  the third  defendant, claiming that by wrongly refusing consent to the assignment of a lease, it caused non-fulfilment of a condition of the agreement.

[2]      Pursuant to orders made by Keane J on 7 November 2006, the issues dealt with at the trial were confined to questions of liability, issues of quantum being deferred for a further fixture should that be necessary

The claims and issues

[3]      On 8 September 2005 the plaintiff and the  first  defendant  entered into  a contract for the sale and purchase of the plaintiff’s business, a marine craft brokerage with premises at Half Moon Bay in Manukau City, Westhaven in Auckland and at Tauranga.

[4]      The  agreement  (the  “sale  agreement”)  when  executed  was  subject  to  a condition that  landlord’s consent  be obtained to  assignment of the  leases  by 20

September 2005, a date subsequently extended by agreement to 14 October 2005.

[5]      The third defendant, trading as Half Moon Bay marina, was the landlord of the premises occupied by the plaintiff at Half Moon Bay.   On 10 October 2005 it wrote to the plaintiff’s solicitor, Mr Stone, concerning the proposed assignment to the first defendant.  The letter was in the following terms:

10th October, 2005

David Stone Barrister & Solicitor PO Box 51946

Pakuranga

Re:   Lease to Taylor Marine

Dear Sir,

Thank you for your letter of the 5th  October regarding the proposed assignment of the lease to Taylor Marine Brokers (2005) Ltd.

We  have  considered  your  request  and  would  advise  that  our  consent  to  the assignment has been granted subject to the assignee confirming that he agrees to be relocated to a proposed new premises planned to be built on the Marina property in the approximate location of the present Dive Shop as and when required.

This particular development and relocation has been under discussion with your client Taylor Marine Ltd for the past 6-8 weeks.  In addition, we have discussed the matter with the assignee so he is aware of the situation and the process we need to go through to bring the project to fruition.

On the assumption that the assignee will formally agree to the project and relocation we will arrange for the assignment  documents  to be executed on behalf  of the Foundation and will forward the same on to our  Solicitor  Phil Blank  of Shieff Angland.

Yours faithfully,

HALF MOON BAY MARINA

Malcolm E Fisher

MANAGER

[6]      On 13 October 2005, Mr Stone sent a copy of that letter to the solicitor acting for the first and second defendants, Mr Palmer.  On 14 October, Mr Palmer wrote to Mr Stone by facsimile.  His letter was in the following terms:

14 October 2005

David Stone

Fax:  [phone]

TAYLOR MARINE BROKERS

We have now received instructions from our client.  Our client does not agree to be relocated within the Half Moon Bay marina.   Accordingly the condition for that Landlord’s Consent to the Assignment of lease has not been met and consent has not been obtained.

As you know the time for Landlord’s Consents to be obtained was extended to

5.00pm today.   As all the consents have not been obtained we are instructed to cancel the Agreement.  Please treat this letter as notice of cancellation.

Yours faithfully

PALMER MACAULEY

Rick Palmer

Partner

[7]      The plaintiff seeks an order for specific performance of the sale agreement, and the principal issue between the plaintiff and the first defendant is whether the latter was entitled to cancel the agreement as that letter purported to do.

[8]      There was a second agreement, entered into by the plaintiff and the second defendant, Mr Hull.  Mr Hull was the sole director of the first defendant (he and his wife were its sole shareholders).   The second agreement, also dated 8 September

2005,  provided  for  the  sale  to  the  plaintiff  of  Mr  Hull’s  ocean-going  yacht “Integrity” for the sum of $300,000.  The parties referred to this second agreement as the “yacht agreement”, and I will do the same.   Clause 25.1 of the sale agreement provided:

This Agreement is interdependent with a Sale and Purchase Agreement in respect of the vessel “Integrity” between Philip  Hull and Taylor  Marine Limited (“the Yacht Agreement”).

[9]      Clause 25.2 of the sale agreement provided that in the event that the Yacht Agreement lapsed or otherwise came to an end for any reason other than the default of either party, then the sale agreement itself would also lapse or come to an end.

25.3     In the event of any default under one Agreement by any party, the other party or parties may terminate either or both such Agreements but without prejudice to any rights or remedies which may exist on account of any such default.   Default under either Agreement shall be deemed to be a default under both Agreements.

25.4     Both Agreements shall be deemed to be completely interdependent and neither party shall be required to complete settlement under this Agreement unless settlement is effected contemporaneously under the Yacht Agreement together with all of the special conditions of sale contained therein.

The purchase price under the sale agreement was $230,000 (excluding GST). Effectively, some of the proceeds of sale of the yacht were to be used to fund the purchase of the business, leaving a balance due to Mr Hull of $70,000.

[11]     “Integrity” came into the possession of the plaintiff.  The plaintiff says that it was delivered to it for the purpose of carrying out repair work, the second defendant that it was delivered in anticipation of the sale.  After the first defendant’s purported cancellation of the sale agreement the plaintiff retained possession of the yacht and sought  and obtained a preservation order in respect  of it  from the Court.   In a counterclaim,  brought  against the plaintiff and  its principal Mr Hayter,  Mr  Hull alleges  that  the  preservation  order  was  obtained  as  a  result  of  material  non- disclosure, that the plaintiff has wrongfully detained the yacht, and that the plaintiff and Mr Hayter have refused to deliver “Integrity” to Mr Hull.  He seeks an order that the yacht be released to him, an inquiry as to damages, interest and costs.

[12]     The plaintiff’s claim against the first defendant proceeds on the basis that by its  letter  of 10  October  2005  the  third  defendant  had  in  fact  consented  to  the assignment of the lease to the first defendant.  It says then that the first and second defendants breached clause 8.2(4) of the sale agreement, together with an implied term that they would at all times act in good faith to obtain the third defendant’s consent to the assignment of the lease.  It is asserted that they concealed the fact that they had any issue with the terms of the third defendant’s consent to the assignment, that is, the requirement that the first defendant agree to a relocation of the premises to a new building that the third defendant intended to develop.

8.2      If a lease is to be assigned to the purchaser then this agreement is subject to a condition that on or before the date for the landlord’s consent stated on the front page of this agreement:

(1)       The landlord shall at the vendor’s cost consent in writing to the assignment to the purchaser of the vendor’s interest as tenant.

(2)       The purchaser shall prepare, at the purchaser’s own expense, a deed of assignment of the lease.

(3)       The  deed  of  assignment  shall  be  executed  by  the  purchaser  as assignee and tendered to the vendor or the vendor’s solicitor within a reasonable time before settlement.

(4)       The vendor shall seek the landlord’s consent to the assignment of the lease and the purchaser shall provide the vendor with all reasonable assistance in this regard, including providing full and prompt responses to the landlord’s reasonable requests for information concerning the purchaser and procuring such guarantees of the proposed assignee’s obligations as the landlord may reasonably require.

[14]     The plaintiff claims that the defendants breached clause 8.2(4) by failing to assist the vendor obtain the consent to the assignment.

[15]     It is unclear to me, and Mr Henry did not explain, why the cause of action against the first defendant is also advanced against Mr Hull personally.  He was not a party to the sale agreement and although the sale agreement and the yacht agreement were “interdependent”, I do not read the yacht agreement as imposing any personal obligation on Mr Hull in relation to the performance of the sale agreement itself.  Mr Hull did sign the sale agreement “as Director of the Purchaser and personally”, those words appearing in typescript below his signature, but Mr Henry did not address any argument to the effect that the words would have been sufficient of themselves to create a personal liability for Mr Hull under the sale agreement.   In my view they could not have done so.   However, I do not think that anything turns on this issue.

[16]     Insofar as the third defendant is concerned, the plaintiff’s claim against it is based on the possibility that the Court might decide that the letter of 10 October

2005 was not a valid consent to the assignment of the lease to the first defendant.  In that eventuality, the plaintiff relies on the terms of the lease that was intended to be assigned.   The lease between the plaintiff and the third defendant was a standard form BOMA (as it then was) lease executed in December 1998.  Clause 4.1 of the

lease contained a lessee’s covenant not to sub-let or part with the possession of the premises, nor mortgage or charge them.  It was also provided that the lessee should not assign or transfer the lease without the prior written consent of the lessor.  There was then a proviso that the lessor would not unreasonably withhold its consent to an assignment.

[17]     The plaintiff says that if the third defendant’s letter of 10 October 2005 was not a valid consent, then it amounted to an unreasonable refusal of consent to the assignment of the lease.  It argues that the terms of the lease did not permit the third defendant to  require relocation (effectively the surrender of the  lease)  as a pre- condition to consenting to an assignment of the lease;   the condition purportedly imposed by the third defendant constituted an unreasonable refusal to assign the lease.

[18]     Then, the plaintiff alleged that the third defendant’s breach of the terms of the lease resulted in loss to the plaintiff because it was unable to complete the sale of the business pursuant to the sale agreement.  The market for the sale of the business at the  time  of  execution  of  the  sale  agreement  had  disappeared  by  the  time  the agreement was cancelled, and the plaintiff had been unable to obtain a purchaser for the business as it had no value.

[19]     The third defendant joins issue with the plaintiff in respect of each of the elements of the cause of action pleaded.  It maintains that it properly consented to the assignment.   If not, then it says that clause 4.1 could not be the basis of a claim against  it  in damages, the only remedies for the wrongful refusal of consent  to assignment being that the plaintiff could obtain a declaration to that effect which it had not sought, or it could simply have assigned the lease without the third defendant’s  consent.    There  was  an  additional,  threshold,  argument  raised  by Mr Hurd turning on the fact that the lease upon which the plaintiff’s claim was based was not in fact a renewed lease, but a new lease, entered into on 25 February 2004. Since the assignment, if it had been approved, would have been within 24 months from the commencement date of the lease, the third defendant asserted based on the wording  of clause 4.1  that the  proscription against  unreasonable  withholding  of consent in the proviso did not apply.

[20]     If  the  Court  concluded  that  the  imposition  of  the  condition  concerning relocation meant that there had in fact been no consent, the third defendant sought to argue that its effective refusal of consent was reasonable having regard to the history of discussions between the parties, which it claimed had led it to believe that there would be no difficulty with a condition requiring relocation, and that there had been an understanding to that effect.   It also raised a number of affirmative defences against the plaintiff.  They included defences based on those discussions, asserting an estoppel and breach of the Fair Trading Act 1986.  It also advanced a cross-claim against the first and second defendants based on the same allegations.    It asserted that there had been a representation made to it that there would be no objection.  It was in reliance on that representation that the third defendant  had proceeded to express its consent in the manner set out in the 10 October 2005 letter.   Further, neither the first nor second defendant had informed it that they no longer agreed to the relocation proposal.  It was said that that failure amounted to a misrepresentation by silence, the misrepresentation being that there was agreement or in any event no objection to the relocation proposal.   The misrepresentation was conduct in trade entitling the third defendant to an indemnity for, or contribution to, any award of damages.

The plaintiff’s claim against the first and second defendants

[21]     I turn now to examine in more detail the plaintiff’s claim against the first and second defendants. In essence, the plaintiff’s cause of action against the first and second defendants rests on an argument that the purported cancellation of the sale agreement by the letter dated 14 October 2005 was invalid.  A number of reasons for invalidity were asserted in paragraph 15 of the statement of claim (as amended).  The pleading was:

15.      That the purported cancellation is not valid as:

(a)       The  third  defendant  at  Half  Moon  Bay  had  consented  to  the assignment of the lease to the first defendant;  or

(b)(i)    The terms of the consent as set out in paragraph 13 herein were the consequence of discussion between the first and second defendants with the third defendant to which the plaintiff was not a party;  and

(ii)       The first and second defendants breached clause 8.2(4) of the [sale] agreement … in that they failed to provide all reasonable assistance to obtain the consent of the third defendant to the assignment of the lease at Half Moon Bay;  and

(iii)      The first and second defendants breached an implied term that they would at all times act in good faith to obtain the consent of the landlords to the assignment of the leases in that they concealed they had an issue with the terms of the third defendant’s consent to the assignment of the Half Moon Bay lease.

(c)       That   in   all   the   circumstances   in   particular   the   matters   in paragraph (b) herein time for the obtaining of the third defendant’s consent to the assignment of the leases to the first defendant was not of  the  essence  and  had  to  be  made  of  the  essence  before  the purported cancellation of the agreements.

Valid consent to assignment

[22]     The first proposition, that the third defendant had in fact consented to the assignment of the lease to the first defendant depends upon the effect in law of the third defendant’s letter of 10 October 2005.   As to that, Mr Henry argued that the letter in fact amounted to the grant of consent, that the condition requiring relocation to the proposed new premises within the marina was an obvious nullity and, because the condition could not have any legal effect, consent had effectively been granted.

[23]     In advancing that submission, Mr Henry relied  on the words used  in the letter:

Our consent to the assignment has been granted…

[24]     He relied also on the discussion of relevant principles in W E Wagener Ltd v Photo  Engravers Ltd  [1984] 1 NZLR 412 to submit that the imposition of the purported condition should be seen as an improper attempt to obtain an advantage by the third defendant at a time when the plaintiff was vulnerable to it.

[25]     In W E Wagener Ltd v Photo Engravers Ltd Cooke J said at 414, referring to the facts of that case:

…I am satisfied that the Judge was entitled to find that the refusal was arbitrary and unreasonable.  Even though there may perhaps have been some other factors, there was ample evidence that a desire to extract an agreement

to alter in the lessor’s favour the terms of the lease as to rent was at least the main reason influencing the refusal.  Such a desire is plainly not a reasonable ground for refusing consent.

[26]     As the wording of that passage suggests, in that case there had in fact been an outright refusal of consent to the assignment of the lease by the plaintiff lessee.  That is not the present case.   However, in Corunna Bay Holdings Ltd v Robert Gracie Dean Ltd [2002] 2 NZLR 186, a decision to which I was referred by Mr St John for the first and second defendants, the lessor consented to a proposed assignment subject to the lessee arranging for the proposed assignee to enter into a deed of covenant with the lessor. Under the deed of covenant the assignee would be required, in the case of any transfer or sublease, to obtain the lessor’s written consent and deliver to the lessor a similar deed by any proposed transferee or sub-lessee. Tipping J (at [8]) described the effect of the deed as creating privity of contract between the assignee and the lessor as well as privity of estate. He referred (at [18]) to authorities establishing that the lessor cannot seek to achieve a collateral advantage as a condition of consenting to an assignment.

[27]     The Court of Appeal held that the lessor had no contractual right to require execution of the deed of covenant through a condition on the assignment, and that by making its consent conditional on execution of the deed of covenant it was unreasonably withholding its consent.

[28]     Neither Wagener nor Corunna Bay Holdings is authority for the proposition that Mr Henry sought  to advance that  an unreasonable condition that  a landlord purports to impose in consenting to an assignment must simply be ignored, with the consent treated as having been granted without the impugned condition. While in some cases of a wrongful refusal of landlord’s consent it might be possible for lessee and intending assignee to agree to the assignment of the lease, the dispute between the plaintiff and the first defendant under the sale agreement requires consideration and application of clause 8.2, which I have earlier set out.  That meant that the sale agreement was conditional on the third defendant consenting in writing to the assignment of the plaintiff’s interest as tenant.

[29]     Here the third defendant’s consent to the assignment was “granted subject to the assignee confirming that he agrees to be relocated to a proposed new premises planned  to  be  built  on  the  marina  property…”.    Mr St John  characterised  the “consent” as effectively requiring the first defendant to agree to formally surrender the lease being assigned when called upon, and to enter into a new lease of new premises on terms that remained undefined.   In my view, there is merit  in that submission as there also is in his submission that the first defendant, as the purchaser under the sale agreement, was entitled to the certainty of a clear landlord’s consent. I consider  that,  just  as  in Corunna  Bay  Holdings, the condition was  an  unlawful attempt by the lessor to obtain an advantage to which it was not entitled.  Mr Hurd advanced the different argument that the letter of 10 October provided consent if the condition was accepted, but was silent on what the position would be if the condition was not accepted.   He submitted that if the condition were not accepted, the third defendant should have been given the opportunity of reconsidering its position, but it had  been  denied  that  opportunity  prior  to  cancellation  by  the  first  defendant. However, I consider it plain from the wording of the letter of 10 October that consent was only granted if the first defendant agreed to the relocation.  It did not so agree. The result, in my view, was that the consent to the assignment was not granted, and the allegation at paragraph 15(a) of the amended statement of claim must be rejected.

Terms of consent agreed to by defendants

[30]     It is correct, as it alleged in paragraph 15(b)(i) of the amended statement of claim  that  the  parties  had  had  discussions  about  the  potential  relocation  of the plaintiff’s marine brokerage business.  Mr Hull had originally approached Mr Hayter in either July or August 2005.   It was Mr Hull who had raised the possibility of purchase of the plaintiff company.  Mr Hull and his wife had formed a company on

18 May 2005 called BoatZdirect (NZ) Ltd in order to set up a franchise in a number of locations involving what he described as a “self-sell system” under which sellers of boats would  buy marketing packages to suit their budget  and boat.   He was familiar with the plaintiff’s premises at Westhaven, Half Moon Bay and Tauranga from previous dealings with the plaintiff and Mr Hayter.   His major object was to

secure those premises, and re-brand them as BoatZdirect franchises which he could then on-sell to franchisees.

[31]     The  original  date  provided  in  the  agreement  for  the  obtaining  of  the landlord’s consent  to  assignment  was 20  September  2005.   That  date was later extended by agreement to 14 October 2005.   In the meantime, on 29 September, Mr Hull advised Mr Hayter of the potential on-sale of part  of his  business to  a prospective franchisee, a company named Graejo Marine Ltd.  One of Graejo Marine Ltd’s directors was a Mr Graeme Reid.

[32]     Mr Reid gave evidence that he had considered a proposal made by Mr Hull that  Graejo  should  become  a  franchisee  operating  out  of  the  Half  Moon  Bay premises.  The concept was that Graejo Marine Ltd would take over the plaintiff’s business as it was, and gradually change it until it operated in accordance with the franchise system proposed by Mr Hull.   There was discussion about an up front payment  in the  sum of approximately  $500,000.    He  thought  that  the  financial forecast  figures  provided  by  Mr Hull,  which  were  substantial,  appeared  to  be credible.   However, arrangements between the two companies were ultimately not able to be completed.

[33]     According to Mr Reid, Mr Hull told him at quite an early stage about the possibility that the business would be relocated within the Half Moon Bay marina. Mr Hayter had also mentioned that possibility.  Then, there had been a meeting at the offices of the third defendant on 29 September 2005.  Mr Hull had also been present at  that  meeting,  as  had  been  Mr Fisher,  the  third  defendant’s  Administration Manager at Half Moon Bay marina.  According to Mr Reid, Mr Fisher had shown them plans of the design for a new facility to which the business was to be relocated. Although he could not be precise in his recall, Mr Reid said that Mr Fisher might well have said that it would be a condition of the consent that there be agreement to relocate.  However, at the meeting on 29 September 2005, Mr Reid decided that he would not proceed with purchasing the franchise.  Essentially, that was because he perceived  there  to  be  problems  with  the  plaintiff’s  leases  at  Westhaven  and Tauranga.  He told Mr Hull that he was not going to go ahead.

[34]     Significantly for present purposes, Mr Reid said in his evidence-in-chief that:

17.I was aware of the proposal to relocate the Taylor Marine business at Half Moon Bay marina.  Phil Hull told me this quite early on in our discussions.   He said it would be “good for you” or words to that effect.  He also said that if the relocation did not go ahead then there was a possibility of leasing excess space at the current premises to Burnsco.

18.      Daryl Hayter also promoted the relocation on the occasions which I

discussed the matter with him.

19.As far as I was concerned the relocation was a side issue.   It was simply something that was going to happen.   There were more important matters to deal with such as the Westhaven and Tauranga leases.

[35]     Mr Hull  also  gave  evidence  about  the  meeting  that  had  taken  place  on

29 September  2005,  although  it  was  his  evidence  that  he  had  not  been  present throughout the meeting.  In his evidence-in-chief, Mr Hull conceded that Mr Fisher had mentioned the relocation at the meeting.  He said:

66The first meeting with Mr Fisher on 29 September was essentially an interview in which he wanted to know about Graejo Marine.   This meeting took place before Mr Reid and I met with Mr Hayter later that day.  Mr Reid of Graejo accompanied me to the meeting which lasted for approximately half an hour.   Mr Fisher was obviously interested to know who the new tenant was to be before agreeing to the assignment.  Mr Fisher talked very causally about the relocation. He showed us some plans but said that they would need resource consent.   As there was nothing set in concrete I said nothing more than words to the effect that it sounded interesting.

67At  that  point  he  was  unable  to  tell  me  the  exact  terms  of  the relocation.   The new premises had not been built and he could not tell me the size of the premises or the rental.   I told him that the proposal would need to be clarified in respect of the exact terms and conditions of the new lease including the size of the new premises and the rental.  He mentioned a rental of $180 per square metre but could not say that this would be the rent.   I also told him that I wanted to know if there would be costs paid for moving.   He was unable to answer this and simply said I would be silly to refurbish the current office.  He was not aware of our intentions to rebrand as BoatZdirect at this stage and I was not prepared to tell him because of the commercial sensitivity of the concept.  At that stage none of this information could be supplied and by 14 October had still not been clarified.

[36]     In his evidence-in-chief, Mr Fisher said:

21.On 29 September 2005, I met both Mr Hull and Mr Graeme Reid (the director of Graejo Marine Limited) in my office, which is in the Marina Administration Building (location 1 on the marina masterplan).  There were only the three of us present.  At that stage, my understanding (from David Stone’s 23 September letter) was that Mr Reid was the ultimate purchaser, so my primary interest was with him.  I tried to ascertain Mr Reid’s financial suitability as a tenant.  I sought and obtained details of his bankers, past trading history and financial background.

22.The meeting was relatively short (20 to 30 minutes).  Apart from the aspect just discussed, its focus was on the proposed relocation.  On behalf of the Foundation, I wanted to be sure that the purchasers knew what was proposed and were agreeable to it.

23.I tabled a copy of the design plans [Doc 3/250], which were then discussed.   I recall that  the design plans  seemed  to come as  no surprise at all to either Mr Hull or Mr Reid.  I assumed that must be because Mr Hayter had, as he had earlier indicated, already informed them about the design plans.  From my office there is a clear view of where the new premises were to be (location 9) and we looked out at that site.   By this stage, the tenant had just  moved into the new Howick Upholstery building.  I recall telling Mr Hull and Mr Reid that the new building would look basically the same as the Howick Upholstery building.   I responded to questions from both of them about such things as likely rental rates (we were still in the area of

$170-$180 per m2), timing and the need for a resource consent.   I

told  them  the  position  on  the  resource  consent:     that  “Boat

Brokerage” was not a permitted usage, it was a “controlled” usage, ie required a resource consent, but that this should be granted more or less as a formality.  As to timing, I pointed out that that depended on the grant of the resource consent, which in turn would depend on whether the Council simply accepted the application or required it to be notified.  Neither Mr Hull nor Mr Reid raised any objections or concerns.  As I understood it, there was agreement that the proposal would proceed although obviously there were to be further detailed issues to resolve.

24.I told Mr Hull and Mr Reid that it would be a condition of the Foundation’s consent to assignment of the Taylor Marine lease, that the purchaser formally agree to relocate to the new facility.  Again, I saw this as simply formalising the agreement, which already existed. No objection or concern was raised by either Mr Hull or Mr Reid about this.  My understanding from their reactions was that neither had any difficulty with the condition.

[37]     Mr Hull was cross-examined by Mr Hurd at some length on his recollection of what had been discussed at the meeting.  In part, the cross-examination seemed to be designed to obtain concessions by Mr Hull that he had not in fact raised with Mr Fisher, at the meeting, any issues concerning the terms of relocation, size of the premises or the other matters to which he had referred in paragraph 67 of the brief

that he read as his evidence-in-chief.    However, there was  in  fact  a substantial amount of agreement between all the witnesses who were present as to what had been discussed at the meeting and Mr Fisher himself gave evidence about referring to the plans, and having been questioned about likely rental rates, timing and the need for a resource consent.  The crucial question about which the parties remained apart was Mr Fisher’s insistence that he had told Mr Hull and Mr Reid that it would be a condition of the third defendant’s consent to assignment of the plaintiff’s lease that the purchaser formally agree to relocate to the new facility.   Mr Hull firmly maintained that that had not been said, and that if it had been he would have raised an issue about it at the time.  On that issue, Mr Reid had not been very definite in his evidence-in-chief but further examined by Mr Hurd, he said that whilst he could not recall Mr Fisher’s exact words, his impression was that Graejo would be a suitable tenant on condition that it agreed to relocate.   He added that the remark had been made as “we were getting ready to leave” (“we”, presumably referring to Mr Hull and him).

[38]     Two e-mails had been included in the agreed bundle of documents, passing from a Mr Harvey Sheppard to Mr Fisher and vice versa.   In the first e-mail , Mr Sheppard, who is the chairman of the third defendant’s board asked:

Have the brokerage purchasers confirmed in writing that they wish to move as previously planned – this is most desirable….

That  e-mail was sent  at 8.52 p.m. on Wednesday 28  September.    On Thursday

29 September 2005, just after midday, Mr Fisher responded to Mr Sheppard’s e-mail stating:

I’ve just met with the purchasers of the Taylor business.  Seem okay.  I’ve told them that it will be a condition of our lease assignment consent that they agree to relocate to a new facility if it proceeds as planned and we get the required resource consent.

[39]     That e-mail was apparently sent just after Mr Fisher’s meeting with Messrs Hull and Reid.  It confirms Mr Fisher’s evidence and also Mr Reid’s recollection that the imposition of a condition requiring relocation had indeed been discussed at the meeting.  Since the e-mail record was contemporaneous, and created prior to there being any indication of the dispute that was later to develop, I have concluded that

Mr Fisher’s account of what had taken place at the meeting on 29 September is to be preferred to that of Mr Hull.  I find, therefore, that at the meeting on 29 September, Mr Fisher stated that it would be a condition of the third defendant’s consent to assignment of the lease, that the purchaser formally agreed to relocate to the new facility.  I think it must follow from my acceptance of Mr Fisher’s evidence on that point, that I should also accept that no objection or concern was raised about that condition either by Mr Reid, or by Mr Hull.   Rather, as Mr Fisher put it, each had apparently reacted in a way that indicated that neither had any difficulty with the condition.

[40]     There  was  a   further  meeting  on  10 October,   attended  by  Mr Fisher, Mr Hollier  (the  third  defendant’s  marina  manager),  and  Mr Hull.     Mr Fisher explained that, because the on-sale to Graejo was no longer proceeding, the third defendant now needed to form a view as to the suitability of the first defendant as an assignee.   The meeting had been arranged for that  purpose.   It  was Mr Fisher’s evidence that at the meeting design plans for the proposed new premises were tabled (as  they had  been  at  the  earlier  meeting  on  29  September)  and  “there  was  no objection to, or issue raised concerning the relocation”.  He said that the only issue Mr Hull had in fact raised was whether the third defendant would agree to insert into the lease a restrictive covenant preventing the third defendant from having more than two brokerage businesses at the marina.  An indication had been given by him that that would not be possible.  He said that his understanding from the meeting was that the relocation  proposal was  acceptable  and  that  there  would  be  no  issue  about Mr Hull and his company formally confirming that agreement as part of the third defendant’s consent to assignment, “as had already been discussed”.

[41]     Mr Hollier  also  confirmed  that  relocation  had  been  discussed,  and  that Mr Hull had not raised any objection to it.  In his evidence, Mr Hull accepted that the relocation proposal had been discussed, but he said that no detail had been given as to matters such as rental and relocation costs.   The third defendant’s letter of 10

October had been sent following the meeting.

[42]     In view of the foregoing, there appears to be some basis for the plaintiff’s allegation made in paragraph 15(b)(i) of the amended statement of claim, that the

terms of the consent (in particular, I suppose, the plaintiff intends to refer to the condition) were the result of discussions between the first and second defendants with the third defendant, to which the plaintiff had not been a party.  It is however, difficult to see the legal significance of that conclusion, unless it can be seen as contributing in some way to the allegations made in paragraphs 15(b)(ii) and (iii).

Breach of clause 8.2(4)

[43]     Paragraph 15(b)(ii), as has been seen, goes on to allege that the first and second defendants breached clause 8.2(4) of the sale agreement, in that they failed to provide all reasonable assistance to obtain the consent of the third defendant to the assignment of the lease of the Half Moon Bay premises.

[44]     The circumstances relied on by the plaintiff in support of that contention begin with the fact that the third defendant’s letter of 10 October 2005 had been promptly sent to Mr Hull’s solicitor (Mr Palmer) by Mr Stone.  By a facsimile dated

13 October 2005, Mr Stone had sought Mr Palmer’s urgent confirmation that the first defendant agreed to the condition.  Mr Stone wrote:

Following is a copy of a letter from the Management of Half Moon Bay marina recording the conditional consent of the landlord to the assignment of the Lease to your client.  (Original emphasis)

Please can you urgently confirm your client’s agreement to the condition by faxing direct notice to the author of that letter and sending me a copy.

[45]     Mr Palmer replied on the same day, indicating that he had been unable to contact his client, but stating that he had left a message for him to make contact as quickly as possible.  He confirmed that he would send his response direct to the third defendant.  In a further facsimile sent later on 13 October 2005, Mr Stone mentioned issues relevant to the Tauranga lease, but he concluded by asking that Mr Palmer let him know once he had instructions that the condition of the consent concerning the Half Moon Bay premises was acceptable to the first defendant.

[46]     Mr Hull had a discussion with Mr Palmer in the afternoon of 13 October. Mr Palmer  explained  to  him  that  the  third  defendant  had  consented  to  the

assignment, subject to the relocation condition.  He stated that he had told Mr Palmer that the condition was not acceptable to him, yet he had apparently not instructed Mr Palmer to reply directly to Mr Stone or the third defendant.  Mr Henry pointed to evidence given by Mr Hull that the condition was something to which he would have objected strongly had it been raised in the discussions with the third defendant, yet he had not raised anything about the condition when it actually appeared in the letter of 10 October until 14 October.  He suggested that Mr Hull had, instead, chosen to be covert about his objections, not raising then.

[47]     It is clear, on the evidence, that the next communication that Mr Palmer had with the third defendant was the 14 October facsimile apparently sent immediately after 5.00 p.m. on that day purporting to  give notice of cancellation of the sale agreement.  Be that as it may, there was also evidence from Mr Fisher that after he had sent the letter of 10 October and prior to 14 October he had had a telephone discussion with Mr Hull.  In that discussion, he said that Mr Hull had told him that he had been thinking further about the relocation, and did  not think that  it  was necessarily such a good idea.  Mr Hull had said he thought it might be better to be near the sales berth, a reference to the moorings near the present Taylor Marine offices.  He said that the current premises needed money to be spent on them (which Mr Fisher took to be a reference to redecorating) now, and it would not make much sense to do that and then abandon the premises as part of the relocation.  Mr Fisher recalled Mr Hull asking rhetorically, “why spend the money twice?”.

[48]     Cross-examined by Mr Henry, Mr Fisher indicated that he was unsure as to whether or not Mr Hull had been aware of the third defendant’s letter of 10 October at the time of the discussion.  I consider it unlikely that Mr Hull was aware of it, and accept Mr Hull’s evidence (to be discussed below) that he did not find out about the letter until the afternoon of 13 October.  Mr Fisher accepted that what Mr Hull had said  in  the  discussion  was  a  change  of  position  from  what  he  had  understood Mr Hull’s  position  to  be  from  their  previous  meetings.     He  also  accepted  a proposition put to him that  in fact it had been a “total turn-around”.   However, Mr Hull had not rejected the proposal and Mr Fisher had not made an issue about the position because the third defendant’s requirements had been set out in the letter of

10 October 2005 to Mr Stone; if there were to be an issue he would have anticipated

that being raised by Mr Hull’s solicitor through Mr Stone.  There were other reasons that he had for not wanting to engage with Mr Hull about the issues.  For example, Mr Hull’s preference to be located in premises near the sales berth might be a short lived advantage, since the berth was subject to a six month termination clause in the event  of the redevelopment  proceeding.   Mr Fisher was aware that  Mr Hull had carried out a due diligence exercise and did not consider that he had an obligation to raise that kind of issue.

[49]      Mr Hull indicated, when cross-examined by Mr Henry, that he could not recall the telephone conversation with Mr Fisher, although he accepted that it might have occurred.  In the absence of any more definite evidence from Mr Hull on the point, I accept Mr Fisher’s evidence that a telephone call did take place with the content that Mr Fisher described.   However, it is not clear that at the time of the telephone discussion, Mr Hull was aware that  the relocation condition had been imposed.  Mr Fisher was unsure as to the date on which the telephone call had taken place.

[50]     Mr Henry’s  point  was  that  neither  Mr Hull  nor  his  solicitor  raised  the unacceptability of the relocation condition until discussions that took place on the morning of 14 October 2005.  On that morning, Mr Hull had two discussions.  One was with Mr Hayter.   It was by telephone, because Mr Hayter was in Wellington. The other was with Mr Davidson, a business consultant engaged at the time by the plaintiff.

[51]     According  to  Mr  Hayter,  Mr Hull  had  telephoned  him,  and  said  that  he wanted to cancel the agreement because the leases were not in place.  (By this point, consent  had  been  obtained  with  respect  to  the  assignment  of  the  lease  of  the Tauranga premises, but delays were being experienced in respect of obtaining Auckland  City Council’s agreement  to the assignment  of the Westhaven  lease.) Mr Hayter said that he responded to Mr Hull by saying that the leases would happen as a matter of course, and that “that was our arrangement”.  He put it to Mr Hull that Mr Hull must  have had a problem with his franchise business, and said  that  he obtained no response.  He then said to him that there were costs that would need to be paid if he wanted to cancel the agreement and Mr Hull had responded by simply

saying, “I’m out”.  Mr Hayter then called his Half Moon Bay office, to be told that Mr Hull had been to the premises and picked up the key for “Integrity”.   Mr Hull was regularly at the premises working on databases and the transfer of the business, and  the  key was  openly  displayed.    Mr Hayter  then  instructed  Mr Davidson  to remove Mr Hayter’s property from the yacht.   He thought that Mr Hull might be taking the boat away “then and there”.

[52]     His evidence was that he was later advised (presumably by Mr Stone) that Mr Hull was purporting to cancel the agreement.  He believed that that had been on the following Monday, 17 October. However, a file note taken by Mr Stone of a discussion between both Mr Hayter and Mr Davidson on the following day, Saturday

15 October, suggests that both were by then aware of the purported cancellation of the agreement by the first defendant.

[53]     Mr Hayter was cross-examined about his discussion with Mr Hull by both Mr St John and Mr Hurd.   He agreed with a proposition put to him by Mr St John that Mr Hull had told him that there would be no extension beyond the deadline of

14 October.  He maintained, however, that in their discussion the only lease that had been mentioned as causing a difficulty was the Auckland City Council lease and he was adamant that there had been no mention of an issue with Half Moon Bay.  He maintained that position under cross-examination by Mr Hurd.

[54]     Mr Hull stated in his evidence that he had told Mr Hayter in the telephone discussion  on  14  October  that  he  intended  to  cancel  the  sale  agreement  if  the consents were not given before 5.00 p.m. on that day.  He said that he had also told him that  the  consent  for  Half  Moon  Bay was  not  acceptable.    He  denied  that Mr Hayter had referred to the franchise business, or mentioned costs.

[55]     Mr Davidson gave evidence of a discussion that he had also had with Mr Hull on 14 October.   The discussion apparently took place in the car park at the Half Moon Bay marina.  After it had concluded Mr Davidson went back to the plaintiff’s office at the marina and rang Mr Stone.  He explained that he had rung Mr Stone:

…to advise that I had been speaking with Mr Hull and that he had informed me that he would be avoiding the contract due to the problems with two

leases.  I explained to Mr Stone the position with the Auckland City Council and said that we must work to get that consent by 5.00 p.m. that day.  I then explained  to  Mr Stone that  Mr Hull  had  told  me  that  there  had  been  a qualification in regards to the consent with Half Moon Bay marina and that Mr Hull was not happy with that qualification.

[56]     According to Mr Davidson, Mr Stone then informed him that what the third defendant had been requesting was not possible and that he would send by facsimile the relevant part of the Half Moon Bay marina lease so that Mr Davidson could see for himself that that was the position.   On Mr Stone’s advice, Mr Davidson had continued to work on obtaining the Auckland City Council’s consent to assignment of the Westhaven lease, which was in fact obtained later that afternoon.   Cross- examined by Mr Hurd, Mr Davidson also referred to a telephone discussion that he had had with Mr Hayter that morning, evidently prior to Mr Davidson’s discussion with Mr Hull.  In that discussion, Mr Hayter had asked him if he could go to Half Moon Bay and collect the property belonging to the plaintiff and Mr Hayter from “Integrity”.  Mr Davidson’s evidence corroborated Mr Hayter’s evidence about the content  of  the  discussion  that  had  earlier  taken  place  between  Mr Hayter  and Mr Hull, inasmuch as, according to Mr Davidson, Mr Hull had mentioned that some issues had arisen and there was a concern about the Auckland City Council lease.  It was when he was coming back from the yacht, having been there in response to Mr Hayter’s request that Mr Davidson had, apparently by chance, met Mr Hull.

[57]     In his evidence-in-chief, Mr Davidson recounted that Mr Hull had told him that he wanted out of the agreement, as approval to assign only one of the leases had been obtained.  Mr Davidson had responded that the Auckland City Council would approve the assignment by 5.00 p.m.  He said that Mr Hull had appeared surprised by him saying that and that it was at that point that Mr Hull had indicated that he would not agree to the Half Moon Bay assignment, because he was worried that another brokerage could go into the same location as the plaintiff presently had, if he was relocated.

[58]     Mr Davidson also gave evidence that Mr Hull had said that he wanted an assurance that that would not be the case.   He said that he understood from what Mr Hull had said that he would be happy to be relocated, provided that he had that assurance.

[59]     Mr Hull was cross-examined by Mr Henry about when he had become aware of the third defendant’s letter of 10 October.  Mr Hull said that it had been some time on the afternoon of 13 October, and on the basis of records of telephone calls that he had made on that day he thought that it would probably have been in a call timed at

4.09  p.m.  that  Mr Palmer  had  told  him  about  the  purported  condition  on  the assignment.

[60]     Mr Hull was pressed by both Mr Hurd and Mr Henry as to why he had not instructed Mr Palmer to raise an immediate objection to the relocation condition, or done so himself.  His response to Mr Hurd was that he had told Mr Palmer that he would tell Mr Hayter and Mr Davidson personally, and that he thought that would be the speediest way of dealing with it.  The following morning, he had gone to work at about 8.00 a.m., had endeavoured to make contact with Mr Hayter only to find that he was in Wellington and had then run into Mr Davidson at about 9.00 a.m.   He recalled that he had spoken to Mr Davidson, before later speaking to Mr Hayter by telephone.   However, on that issue I prefer the evidence of Mr Davidson because their apparently chance encounter was after Mr Hayter had instructed Mr Davidson to remove property of the plaintiff and Mr Hayter from “Integrity”.  It seems plain that Mr Hayter would not have given that instruction unless he had already had the call from Mr Hull.

[61]     Questioned by Mr Henry, Mr Hull said that he had tried unsuccessfully to see Mr Hayter on the afternoon of 13 October at the Half Moon Bay premises.   In his evidence-in-chief he had also referred to the need to discuss the position with his wife, who was a fifty per cent shareholder in the company and he had also spoken to a person who was his “franchise adviser”.   He had, however, raised the issue the following morning with Mr Hayter and with Mr Davidson.

[62]     Mr Henry put it to Mr Hull that he had not instructed Mr Palmer to raise an objection in relation to the relocation condition because all he had wanted to do was delay having the issue sorted out, with the intention of ensuring that the time for compliance passed.  Mr Hull denied that that was the case, and pointed to the fact that he had raised the  issue with Mr Hayter  and Mr Davidson on the following morning.     Nevertheless,  he  conceded  to  Mr Henry  that  on  the  morning  of

14 October,  at  the  latest  by 10.43  a.m.  he  had  instructed  Mr Palmer  that  if the consents to assignment, including an unconditional consent to assignment of the Half Moon Bay lease, had not been obtained by 5.00 p.m. on that day, the sale agreement was to be cancelled.  Mr Palmer took no step to secure provision of the consents, nor removal of the condition concerning Half Moon Bay, and I infer that Mr Hull must also have instructed Mr Palmer, on 14 October,  not to take any steps to endeavour to secure removal of the condition.

[63]     There  is  a  clear  conflict  in  the  evidence  about  whether  or  not  Mr Hull mentioned to Mr Hayter his objection to the relocation condition in the telephone discussion  on  the  morning  of  Friday  14  October.    Although  I  have  preferred Mr Hayter’s evidence on some issues, I have not been able to resolve the question of whether or not Mr Hull mentioned the relocation condition in that discussion.  Both Mr Hull and Mr Hayter were apparently convinced of their recollection of events.  If Mr Hull had mentioned the relocation condition that might have been a significant factor in  influencing  Mr Hayter  to  instruct  Mr Davidson  to  immediately remove Mr Hayter’s property from “Integrity”.

[64]     Had Mr Hull simply been  intent  on letting the time for  compliance with clause 8.2(4) of the sale agreement go past, his safest course would have been not to have any discussion with Mr Hayter.  Yet, he made the telephone call.  Further, if he had deliberately not mentioned his concern about the relocation condition in his discussion with Mr Hayter, it is difficult to see why he would have done so in the discussion with Mr Davidson that followed so soon afterwards.

[65]     In any event, the fact is, of course, that he did make his position on the relocation condition plain to  Mr Davidson on the Friday  morning,  and that  fact contradicts any suggestion that he was intent  on concealing his objection to the condition.  I find it hard to accord much significance to any delay on Mr Hull’s part, given that the relocation condition was imposed in a letter apparently sent on 10

October by the third defendant by ordinary mail to Mr Stone, received by him and forwarded to Mr Palmer on 13 October 2005 at 12.41 p.m. and learned about by Mr Hull after 4.00 p.m. that afternoon.

[66]     Mr Henry relied on the events that had occurred from 10 October as showing that the first and second defendants decided that they would not provide reasonable assistance by advising whether or not that they would “confirm the agreement to relocate”.   The plaintiff had been entirely dependent on the first and second defendant’s response to know whether or not the condition was agreed to.   He submitted that it was not competent for the first and second defendants to cancel the sale agreement on the basis of their own failure to provide reasonable assistance, contrary  to  the  obligations  of  the  purchaser  under  clause  8.2(4)  of  the  sale agreement.

[67]     Mr St John argued to the contrary.  He pointed out that the first and second defendants had provided the third defendant with the necessary information for them to consider their financial standing, they had co-operated to the extent that their solicitor prepared and forwarded to Mr Stone executed copies of all three separate assignments for leases (the obligation to do so being set out in clause 8.2(2) of the sale agreement).   However, provision of reasonable assistance in accordance with clause 8.2(4) could not be construed as obliging the first defendant to agree to the condition.   That was especially so  where, in fact, there had been no  agreement reached on the necessary terms of any new lease that  might  pertain to the new premises.

[68]     Mr St John contended  that,  contrary to  a  submission  made  by  Mr Henry, Mr Hull had not “sat” on his problem with the condition.  As already noted, at some time after the third defendant’s letter of 10 October had been sent, Mr Hull had had a discussion with Mr Fisher in which he had indicated that he was having second thoughts about the relocation although it is likely that he was then unaware of the terms of the 10 October letter.  Then, when he did become aware of that letter, he plainly told Mr Davidson that he would not agree to the condition that the third defendant had purported to impose.  Having received that advice, Mr Davidson, of course, discussed the position with Mr Stone.  Mr Stone apparently advised him that the condition imposed would be ineffective and the plaintiff through none of its officers or agents took any steps to secure removal by the condition.  I consider that there is force in Mr St John’s submission that, if the plaintiffs took no action at that point and did not request the first and second defendants to do so, there can be no

room  for  a  suggestion  that  they  have  failed  to  provide  the  plaintiff  with  “all reasonable assistance” in terms of clause 8.2(4) of the sale agreement.

[69]     I have already expressed the view that once the third defendant had formally advised its position on the assignment, including the relocation condition, the time that elapsed between Mr Hull learning of the purported imposition of the condition (after 4.00 p.m. on 13 October 2005) and his advice to Mr Davidson the following morning that it was unacceptable, did not constitute a significant delay.   For these reasons, I would reject the plaintiff’s claim that the first  and second defendants breached clause 8.2(4) of the sale agreement.

Breach of an implied term of good faith

[70]     I consider next the pleading in paragraph 15(b)(iii) concerning an alleged breach of an implied term that the first and second defendants would at all times act in good faith to obtain the consent of the landlord to the assignment of the leases, it being claimed that they had concealed they had an issue with the terms of the third defendant’s consent to the assignment of the Half Moon Bay lease.

[71]     I note that Mr Henry did not open on this pleading, nor did he address any submissions in support of it in closing.  There is no authority for the proposition that a term such as the plaintiff asserts should be implied into an agreement for sale and purchase of a business.  The parties here contracted on the standard form approved by the Real Estate Institute of New Zealand Inc and the Auckland District Law Society for such agreements (the third edition of March 2005).   There are detailed provisions in the agreement including clause 8.2, which I have earlier set out, concerning the respective obligations of the parties.   The provisions of clause 8.2 deal in particular with their obligations with respect to the assignment of leases. Clause 8.3 immediately following then sets out provisions dealing with the operation of conditions.  That clause reads:

8.3      If this agreement is expressed to be subject either to the above or to any other condition(s), then in relation to each such condition the following shall apply unless otherwise expressly provided:

(1)       The condition shall be a condition subsequent.

(2)       The  party  or  parties  for  whose  benefit  the  condition  has  been included shall do all things which may reasonably be necessary to enable the condition to be fulfilled by the date for fulfilment.

(3)       Time for  fulfilment  of any condition and any  extended time for fulfilment to a fixed date shall be of the essence.

(4)       The condition shall be deemed not to be fulfilled until notice of the fulfilment has been served by one party on the other party.

(5)       If the condition is not fulfilled by the date for fulfilment, either party may at any time before the condition is fulfilled or waived avoid this agreement by giving notice to the other.   Upon avoidance of this agreement the purchaser shall be entitled to the immediate return of the deposit  and  any  other  moneys  paid  by  the purchaser  to  the vendor and neither party shall have any right or claim against the other arising from this agreement or its termination.

(6)       At any time before this agreement is avoided the purchaser may waive any finance condition and either party may waive any other condition which is for the sole benefit of that party.   Any waiver shall be by notice.

[72]     Both provisions need to be read together to ascertain the full breadth of the obligations of the parties in respect of the condition deemed to apply by clause 8.2. Their comprehensive nature makes it untenable to suggest that a further term needs to be implied to give business efficacy to the contract.  Neither do I see any need or scope to assert that a condition of the kind referred to in the pleading should be “deduced by implication or interpretation from the express terms of the contract”: Vickery v Waitaki International  Ltd [1992] 2 NZLR 58 at 64 (CA). I am not prepared to find that the contract was subject to the implied term alleged by the plaintiff.

Clause 8.3

[73]     Another  argument  that  was  advanced  by  Mr Henry  with  reference  to paragraph 15(c) of the amended statement of claim must also be rejected, having regard to the terms of clause 8.3 which have just been set out.  He contended that the first defendant could not cancel the contract on 14 October 2005 because time was not of the essence once it  was agreed that the assignment  to Graejo  would not proceed, and the parties agreed to extend the time for fulfillment of the condition for landlord’s consent.  On 29 September 2005 Mr Stone wrote to Mr Palmer suggesting

new dates for both landlord’s consent and possession, those dates being 14 October and  21 October  2005  respectively.    On  30  September  2005,  Mr Palmer  replied agreeing to the proposed new dates, but on the basis that if the parties could settle earlier they would do so.  The result of that exchange of correspondence was simply to substitute a new date by which the third defendant’s consent in writing to the assignment was required.  In those circumstances it is plain that clause 8.3 applies to the new date;  that is the “extended time for fulfillment” contemplated by the clause. Consequently, fulfillment of the condition by 14 October was “of the essence” (see clause 8.3(3)).

[74]     A further argument advanced by Mr Henry was based on clause 8.3(2).  He submitted that the condition requiring landlord’s consent to the assignment was a condition included solely for the benefit of the first defendant.   He argued as a consequence that the first defendant had an obligation to do all that was necessary to enable  the  condition  to  be  fulfilled  by  the  date  for  fulfillment.    This  would effectively mean that the first defendant had the same obligation to secure the third defendant’s consent to the assignment, under clause 8.3(2), as the plaintiff had under clause 8.2(4).

[75]     Mr St John pointed out that the opening part of clause 8.3 provides that the sub-clauses that  follow are to apply “unless otherwise expressly provided”.   He maintained that clause 8.2(4) was in fact an express provision contrary to any notion that clause 8.3(2) should be construed in the manner for which Mr Henry contended. There would be little sense in providing, as clause 8.2(4) does, that the obligation of seeking the landlord’s consent was that of the vendor, subject to provision of assistance by the purchaser, if clause 8.3(2) was to be construed as imposing a duty on the purchaser also  to seek the landlord’s consent.    However, the obligations arising from the two clauses are not precisely the same.   Under clause 8.2(4) the obligation on the vendor is to  seek the  landlord’s consent;   the purchaser  must provide the vendor with all reasonable assistance “in this regard”;   that is, in my view, assistance in obtaining the landlord’s consent.  Then, under clause 8.3(2) there is a slightly different obligation imposed.  In the case of the condition concerning the landlord’s consent, it seems plain that both the vendor and the purchaser will have an obligation to do all that is necessary to enable the condition to be fulfilled.   The

similarity in subject matter does not ultimately in my view mean that the purchaser is not subject to any duty at all, concerning the assignment, under clause 8.3(2).

[76]     However,  I  consider  that  Mr  St John  was  on  stronger  ground  when  he submitted that if clause 8.3(2) did apply to the purchaser, then there had been no breach of the clause.  The fact that the condition was to be objected to was advised to representatives of the plaintiff on the morning of 14 October.  In my view, once that point was reached, if there was an obligation on the first defendant to endeavour to secure removal of the condition to which it objected (the premise of Mr Henry’s argument), it is difficult to see why only the first defendant should have had that obligation, and not the plaintiff.   I cannot accept that the condition requiring the landlord’s consent was imposed solely for the benefit of the first defendant.  Under the lease, the third defendant’s consent was necessary to enable the plaintiff to assign it.  The plaintiff did not take any steps to secure removal of the condition until the following week.   By then, the time for obtaining the landlord’s consent had come and gone.  In my view, if there was a breach of clause 8.3(2), it would have had to have been a breach by both parties, and  not only the first  defendant.    In those circumstances, the plaintiff could not assert that any damage that it suffered was a result of the first defendant’s breach.  I consider, however, that in fact neither party breached clause 8.3(2).

[77]     There is a degree of artificiality in construing clause 8.2(4)’s requirement for the purchaser to give “all reasonable assistance”, and clause 8.3(2)’s obligation to do all things which  may reasonably be necessary,  as creating an obligation on the purchaser to take steps to secure removal of an improper condition that a landlord has purported to impose.  I would have thought it was sufficient, as happened here, for  a party  in  the  position  of the  first  defendant  to  advise  the  vendor  that  the condition purportedly imposed by the landlord was unacceptable.  I consider that the first defendant did all that it was required to do.

Outcome

[78]     For these various reasons I consider that the plaintiff’s claim against the first and second defendants cannot succeed.

The plaintiff’s claim against the third defendant

[79]     As earlier explained, the plaintiff’s cause of action against the third defendant is premised on a conclusion such as that that I have already expressed, that by including the relocation condition in its letter of 10 October 2005 the third defendant effectively withheld its consent.  The plaintiff asserts that the withholding of consent was unreasonable, that the third defendant thereby breached clause 4.1 of the lease. The third defendant admitted in its pleading that the terms of the lease did not permit it  to  require  the  surrender  of  the  lease  as  a  precondition  to  consenting  to  an assignment of the lease.  However, as I mentioned earlier, Mr Hull argued that it had not in fact refused consent.  I have already dealt with that contention in the course of rejecting the plaintiff’s claim against  the  first  and  second  defendants.    Another argument raised by the third defendant was based on the fact that it had in fact given an unconditional consent on 20 October 2005 after being alerted to the objection to the  10 October  letter;    although  the  first  defendant  had  by  then  cancelled  the agreement,  Mr Hurd  submitted that  consent  had  still  been  forthcoming  within  a reasonable time, thereby satisfying the third defendant’s obligations to the plaintiff.

[80]     If the arguments were rejected, the third defendant argued that its “refusal” of consent was not unreasonable against the background of the discussions that had taken  place  involving  Mr Hayter,  Mr Reid  (of Graejo),  Mr Hull and  Mr  Fisher. Those discussions were allegedly such as to  leave the  third  defendant  with  the justifiable belief that the relocation condition would be acceptable.

[81]     Again as earlier mentioned, the third defendant also asserted that there had in fact been a representation made to it that there would be no objection to such a condition, and that the misrepresentation was conduct in trade for the purposes of the Fair Trading Act.  It pleaded affirmative defences against the plaintiff’s claim, based on the Fair Trading Act and estoppel.   The same facts were relied on to seek an indemnity for or contribution to any award of damages that might be made in the plaintiff’s favour from the first and second defendants.

[82]     However, the third defendant also raised two threshold issues in its defence. The first was that, even if it had breached clause 4.1 of the lease, it could not be

liable to the plaintiff in damages, the only remedy for the wrongful refusal of consent to the assignment  being that  the  plaintiff  could  simply  have  assigned  the  lease without the third defendant’s consent.  That could not have occurred on the present facts, of course, because the first defendant was not prepared to take an assignment subject to the condition that the third defendant had imposed.   Mr Hurd, however, relied on a number of authorities which he maintained established that an unreasonable withholding of consent to assignment by a landlord would not give rise to a claim in damages by the lessor.  The relevant pleading in the third defendant’s statement of defence was:

25.If  (which  is  denied)  the  manner  in  which  the  third  defendant expressed its consent in the 10 October 2005 letter (namely subject to the first  defendant  confirming  its  agreement  to  the relocation proposal) constituted an unreasonable withholding of its consent to the  assignment,   the  plaintiff’s  only  remedy  against  the  third defendant was a declaration that it is entitled to assign the lease to the first defendant.

[83]     Clause 4.1 of the lease between the plaintiff and the third defendant provided as follows:

The Lessee shall not sublet or part with possession of the Premises or any part thereof to any person and nor shall the Lessee mortgage or charge the Premises or this Lease.   The Lessee shall not assign or transfer this Lease without the prior written consent of the Lessor PROVIDED that the Lessor will not unreasonably withhold its consent to an assignment of the whole of the Premises to a respectable responsible solvent and suitable assignee where such assignment shall not take place within twenty-four (24) months from the Commencement Date but before giving such consent or before releasing any documents signifying such consent (as may be appropriate) the Lessor shall be entitled to satisfaction of the following conditions:

[84]   Focussing on the proviso, the issue is whether the words constitute a qualification to the lessee’s covenant not to assign or transfer without prior consent, or whether they create a positive covenant by the lessor, the breach of which will give rise to a claim for damages.   The third defendant’s case was that the former applied,  and  that  the  critical words  were  merely  a  qualification  of  the  lessee’s covenant.   Mr Hurd argued that the words  were  in  context  part  of the  lessee’s covenant not to assign.   Secondly, they were a proviso or qualification on an obligation of the lessee not to assign and consequently, could not on their ordinary meaning, record a positive covenant by the lessor.  Thirdly, he maintained that if a

positive and separate covenant by the lessor had been intended, then it could have been expected that clear words would have been used to make the intention apparent. That  was especially so  given the clause’s appearance  in a  standard  form  lease, executed in 1998, no doubt against the background of the line of cases on which Mr Hurd relied.

[85]     Those cases began with Treloar v Bigge (1874) LR 9 Exch 151. In that case, the lessee covenanted with the lessor not to assign the demised premises, without the consent in writing of the lessor, “such consent not being arbitrarily withheld”. Kelly CB posed the question as to whether the clause amounted to an absolute covenant on the part of a lessor not to withhold his consent arbitrarily. He said, at 154:

I am of opinion that they do not constitute a covenant on which the lessee can sue, but are words, the only effect of which is to qualify the generality of the phrase into which they are introduced….  Now the rule of law, no doubt, is that any words in a deed which impose an obligation upon another amount to a covenant by him;  but the words must be so used as to shew an intention that there should be an agreement between covenantor and covenantee to do or not to do a particular thing.  I cannot find any such intention here.   The words, taken grammatically, do not seem to me to amount to an undertaking by the lessor, but are a part of the same sentence as that containing the lessee’s covenant, and qualify its generality.   They prevent that covenant operating in any case of arbitrary refusal on the part of a lessor….

[86]     The approach taken in Treloar v Bigge appears to have been followed by an unbroken line of authority in England until it was effectively abrogated by legislation (s 1 of the Landlord and Tenant Act 1988 (UK)).  For example, in Rose v Gossman (1996) 201 EG 767, there was a lessee’s covenant “not to assign, sub-let or part with the possession of the demised premises or any part thereof without the consent in writing of the lessor and superior lessor such consent not to be unreasonably withheld”.  Lord Denning MR said:

If I were left to construe this document without the aid of previous authority, I confess I would be inclined to say that the landlord promised not unreasonably to withhold his consent.   But, as against this view, there is a line of authority going back to Treloar v Bigge (1874) L.R. 9 Exch 151, including some observations by Romer LJ in F W Woolworth  & Co.  v Lambert [1937] 1 Ch.53, and finally the decision of Salmon J, in Rendall v Robert  & Stacey,  Ltd  (1960),  E.G.  265.    These  show  that  it  has  been accepted for nearly a hundred years now that with a lessee’s covenant in this form, the words “such consent not to be unreasonably withhold” are only a qualification on the lessee’s covenant.  If the landlord unreasonably refuses consent, the tenant is entitled to assign or sub-let without consent.   But it

does not give the tenant a right to damages.  Mr Samuels says he wishes to challenge that view.   I cannot say that he has much chance of success in doing so, for it has stood so long.

[87]     The  same  interpretation  has  been  given  the  words  in  New  Zealand.    In

Cameron v Nash (1900) 19 NZLR 396 the lease contained the following covenant:

The lessee will not, without leave in writing first obtained from the said Hugh Cameron (hereinafter called the “lessor”), assign, sub-let, or part with the possession of the said premises, or any part thereof;   and if and when such leave is granted the lessor shall not ask any premium for granting said leave, nor shall such leave be unnecessarily or arbitrarily withheld by the lessor.

[88]     On the face of it, a clause in those terms would have offered some scope for departure from the Treloar approach, since the latter part of the covenant might be said to gather together two obligations of the lessor.   Nevertheless, Williams J, at

399 referred to the reasoning in Treloar as meaning that the relevant words:

…ought, if possible, to be construed not as a covenant by the lessor, but as a qualification of the covenant of the lessee, although if the same words had been  used  in  another  part  of  the  deed  they  might  have  been  properly construed as amounting to a covenant.   Can they, then, on any fair construction of language, be construed as amounting to a qualification only of the lessee’s covenant?  I am satisfied that they can.  The usual form where the lessor is intended to be bound is to use the words “It is hereby agreed”. If people say in so many words that they agree, there is an express agreement constituted on each side.  There are no such words here.

[89]     Doyle v Hancock  & Co.  Ltd  (1979)  1  NZCPR  88  involved  a  claim  for damages for wrongful refusal of a proposed assignment.   In that case there was a covenant  by the  lessee  of  a  tavern  not  to  assign  without  the  lessor’s  consent, provided that such consent should not be refused in the case of a responsible and substantial person approved by the police and the Licensing Committee.   Vautier J reviewed the relevant authorities at some length, and again followed the English authorities and Cameron v Nash.  At 97, he said:

The present clause is, in my view, logically indistinguishable from those to be found in the long line of cases in which it has been held that no covenant on the part of the landlord is created.

In matters relating to conveyancing and the creation of interests and property it is very necessary that there should be certainty in the law and that established precedents should be followed.  While therefore it appears to me that a clause drawn in the way in which the clause in the present lease has

been drawn can result in a very disadvantageous situation arising from the point of view of the lessee, I cannot treat that as a ground for departing from the long established law governing matters such as this.

[90]     Similarly, in Countrywide Banking Corporation Ltd v Roni Corporation Ltd (In  Liquidation)  (1991)  ANZ  ConvR  380,  Neazor J  again,  after  reviewing  the authorities, concluded at pages 383-384 that there was no good reason not to follow the English decisions as Vautier J had done in Doyle.

[91]     Clause 4.1 in the present case is drafted in a way which makes it materially indistinguishable from the clauses construed in  Treloar and the cases which have followed it, including Cameron v Nash and the other New Zealand authorities.  The words are to be contrasted with other possible drafting approaches.  For example, in Blake v Official Assignee of Rendell and Another (1908) 28 NZLR 571 the covenant read as follows:

That the lessee shall not nor will assign, transfer, sub-let mortgage or in anywise part with the possession or occupation of the demised premises or any part thereof without the consent in writing of the lessor first had and obtained   And the lessor covenants that such consent shall not be arbitrarily or  unreasonably  withheld  nor  shall  any  premium  be  required  for  such consent.

[92]     Sim J  held that the form of words used had been such as to  create two separate covenants, one by the lessee not to assign without consent, the other by the lessor not to withhold his consent  arbitrarily or unreasonably.   Plainly that  was because of the insertion of the words “And the lessor covenants that such consent shall not be arbitrarily or unreasonably withheld”.   The draftsman had effectively supplied words that Williams J had found absent in Cameron v Nash.  Similarly in Ideal Film Renting Company v Neilsen [1921] 1 Ch 575, Eve J held that the words, following the prohibition against assignment without consent:

But the lessor covenants with the company not unreasonably to withhold such consent…

were sufficient to give rise to an independent covenant.

[93]     Mr Hurd bolstered his argument based on these authorities by referring to s 110(1) of the Property Law Act 1952.  That subsection provides:

110      Licence or consent not to be unreasonably withheld

(1)       In all leases, whether made before or after the commencement of this Act, containing a covenant, condition, or agreement against assigning, underletting, charging, or parting with the possession of demised premises or any part thereof  without  licence or  consent,  that  covenant,  condition,  or agreement shall, notwithstanding any express provision to the contrary, be deemed to be subject to a proviso to the effect that the licence or consent is not to be unreasonably withheld, but this proviso does not preclude the right of the landlord to require payment of a reasonable sum in respect of any legal or other expenses incurred in connection with any such licence or consent.

[94]     Mr Hurd submitted that the wording of the subsection makes it clear that what is implied pursuant to it is a qualification on the lessee’s covenant not to assign without consent;   Parliament  has not chosen to imply a covenant  by the lessor. Mr Hurd submitted that it was inconceivable that the draftsman of the provision would not have been conscious of the line of authority from Treloar.  He maintained that the wording used effectively ensured that, wherever s 110 applies, the proviso will apply in the same way accepted in Treloar and the cases that follow it.   He contrasted the provisions of s 110 with other provisions of the Property Law Act which had provided directly for implied covenants by the lessee (s 106) and the lessor (s 107).

[95]     Mr Henry pointed to Korochine 15 Ltd v R P Charans Investments Ltd (HC HAM M338/94,4 November 1994, Hammond J) as a case in which a different view had possibly been adopted.  There, it was provided in the relevant clause of the lease that the tenant:

…shall not assign sub-let or otherwise part with the possession of the premises…without first obtaining the written consent of the landlord which the landlord shall give if the following conditions are fulfilled.

There then followed a list  of matters which needed to be satisfied.    At  page 6

Hammond J recorded his view that the clause both amounted to a positive covenant by the lessor that it would give its consent if the relevant conditions were fulfilled, but also that the clause might operate as a qualification of the lessee’s obligation to obtain the lessor’s consent so as to make it inapplicable if the relevant conditions were fulfilled.

[96]     Treloar  v  Bigge  and  the other  cases  to  which  I  have  referred  were  not apparently cited to Hammond J and it should be noted that the matter was not fully argued before him, since the case was heard on a formal proof basis.  In any event, the only relief sought in the proceeding was a declaration that consent to assignment had been unreasonably withheld and it was not a case in which the right to damages was in issue.  Apart from those considerations, I do not in any event see the decision as departing from the law established by the authorities that have followed Treloar. The words “which the landlord shall give” are much closer to the assumption of an obligation by the lessor than the standard form of words employed in clause 4.1 of the present lease.

[97]     Otherwise, Mr Henry sought  to  distinguish the  various cases upon which Mr Hurd  had  relied  and,  failing  that,  to  argue  that  I  should  adopt  a  different approach, and that having regard to modern authorities on contractual interpretation (including in particular Boat Park Ltd v Hutchinson [1999] 2 NZLR 74), the proviso in clause 4.1 of the present lease should be differently interpreted.

[98]     Mr  Henry  submitted  first  that  Treloar,  and  the  other  cases  upon  which Mr Hurd had relied were cases about re-entry, or cases where the parties had settled the transaction and sought a declaration that the landlord had wrongly withheld the consent.  In each case, he argued, the lessee and assignee had wanted to complete the transaction  and,  in  those  circumstances,  there  will  be  no  damage  sustained  or needing to be recovered against the landlord apart from the costs of obtaining a declaration.    That, of course,  is  not  the  reasoning  that  the  cases  have  adopted. Rather, they have proceeded on the basis that properly construed, the relevant provisions of the leases were not such as to create a promise by the lessor not to unreasonably withhold consent.   In any event, not all of the cases can properly be described as cases where the parties remained willing to settle.   For example, in Doyle v Hancock & Co. Ltd, the plaintiff (the lessee), being defeated in his wish to assign the  lease,  surrendered  it,  and  sued  for  damages  for  his  loss  due  to  the defendant’s refusal of consent.  Vautier J upheld the defendant landlord’s argument that there was no separate covenant by the defendant on which the plaintiff could sue.

[99]     Mr Henry  nevertheless  sought  to  argue  on  the  basis  of  Boat  Park  v Hutchinson that I should reject the “conventional” interpretative approach adopted in the  cases  upon  which  Mr Hurd  relied,  and  instead  endeavour  to  ascertain  the “objective intent of the parties”.  He was relying, of course, on the adoption by the Court of Appeal in that case, at p 81 of what was said by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 All ER 98, at

114-115.  The principles are well known and I do not see that there is any need to set them out here.  However, a common theme running between them is that the Court should endeavour to  ascertain  the  meaning  of the  words  used  in  a  contract  by considering what they would convey to a reasonable person possessing all the knowledge of the background that would have been available to the parties in the situation in which they were at the time of the contract.  Further, if words are not to be given their  natural and  ordinary meaning  that  should  only  be  because  some element of the context indicates that the parties must have intended some meaning other than the literal one.  The last-mentioned matter was derived by Lord Hoffman from what Lord Diplock said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1985] AC 191 at 201, [1984] 3 All ER 229 at 233:

If  detailed  semantic  and  syntactical  analysis  of  words  in  a  commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense.

[100]   Referring to the decision of the English Court of Appeal in Rose v Gossman, Mr Henry submitted that it was apparent from remarks made by Lord Denning MR in his judgment in that case that he was of the view that the commercial reality was that  the  landlords  should  be  liable  for  damage  caused  by  the  unreasonable withholding of consent to an assignment.  I do not read Lord Denning’s judgment in that way.   I have already quoted the relevant extract above.   I consider that Lord Denning was expressing a possible doubt as to the correctness of the interpretation that had previously been adopted by the long line of authorities which he mentioned. However, in the end he did not depart from those cases.  I infer, from the reasons that he gave, that was because the approach had been established for too long.   The unarticulated reason must have been that it would be likely to cause commercial uncertainty and inconvenience if what had been for so long regarded as the correct approach were departed from.

[101]   Nevertheless, it was a concept which might loosely be described as modern commercial reality on which Mr Henry based his argument that a new approach was now required.  He referred to what he described as the relevant “objective factors” as being that the tenant is entering the lease to build a valuable asset, that the tenant is entitled to the benefit of the sale of the asset and that any attempt by the landlord to gain an advantage greater than the existing obligations is unlawful.   Each of those propositions, however, could have been put to the Court in any of the cases on which Mr Hurd relied.  They do not depend on the particular context in which the present lease was negotiated.  I am unable to find in any of Mr Henry’s “objective factors” a compelling contextual consideration which should lead to a different interpretation from the one adopted in Treloar and the cases that have followed.

[102]   At one point, Mr Henry submitted that the issue is not the meaning of the words used, but the intent of the parties as to the consequences should the landlord jeopardise  the   sale   by  attempting   to   advance   its   position  by  unreasonably withholding its consent.  In my view, that submission distorts what was said by Lord Hoffman in Investors Compensation Scheme Ltd v West Bromwich Building Society. One does not look for the intent of the parties, without looking at the meaning of the words that they have used.  Rather, the position is that words should be given their natural and ordinary meaning, unless there is something in the context which makes it plain that some other meaning must have been intended.  The telling point against a contextual argument leading to a different result here is, in fact, the very long history during which drafting such as that that has been employed in clause 4.1 of the present  lease has been consistently held by the Courts to mean that the proviso simply operates as a qualification to the lessee’s covenant not to assign or transfer without prior consent.

[103]   I note that no evidence was called which would shed any special light on what the context might have been when the third defendant and the plaintiff entered into  the  relationship  of  lessor  and  lessee.    The  plaintiff  became  the  lessee  on

10 December 1999, having received an assignment from the original lessee, Pacific

Yacht Brokers (1989) Ltd of the lease that was originally executed in December

1998.  Significantly for present purposes, however, and as I have already mentioned, the  lease  was  largely  in  the  standard  form  of  the  precedent  BOMA  lease  in

widespread use at that time.   It would be surprising indeed if there were relevant background evidence which suggested that the parties intended, by the words used, that a different position would apply than what must have been by then the generally well understood meaning of those words.

[104]   It could hardly be said that the words used in a standard form contract could have different meanings in different circumstances according to evidence that might be called about the intent of the parties at the time.  In any event, no such evidence was called and I reject Mr Henry’s argument based on Boat Park Ltd v Hutchinson. I consider that to adopt a different approach now would be to risk causing potentially widespread uncertainty.  I prefer the approach for which Mr Hurd argued.  It is the same as that set out  in paragraph 11.102 of Hinde McMorland & Sim, “Land Law in New Zealand” (LexisNexis).

[105]   As a footnote,  I  mention  that  in  the  Property Law  Bill  currently  before Parliament, there is a direct provision to the effect that where a lessor receives a request  by the  lessee  for  consent  to  assign  the  lease,  then  the  lessor  must  not unreasonably  withhold  consent.     Another  provision  will  directly  provide  that damages may be recovered from the lessor if consent  is unreasonably withheld. Together, these provisions would abrogate the Treloar line of authorities.  It is to be noted, however, that on the current wording of the Bill the intent is that the altered position should only apply in respect of requests made for consent to assignments after 1 December 2007 (and I assume that that date will be adjusted, if the Bill is enacted, to be an appropriate date after the Act comes into force).  The Bill is still before a select committee and there cannot be any certainty as to when it will be passed.  It cannot affect the outcome here.  In my view, where there has been such a long-standing and consistent approach to the interpretation of a common provision in a commercial lease, legislative intervention is the only appropriate means by which the law ought to be changed, if for no other reason than that people affected will receive notice, by virtue of the legislative process, of the charge about to occur.

[106]   In the result, the plaintiff’s claim for damages against the third defendant cannot  succeed.    That  conclusion  makes  it  unnecessary  to  consider  the  other

defences advanced  by the third  defendant. I  mention briefly,  however  the other preliminary issue raised by Mr Hurd on its behalf.

[107]   The  second  preliminary or  threshold  issue  raised  by  the  third  defendant concerned the fact  that the plaintiff’s  lessee’s  interest  was derived  from a deed executed on 25 February 2004.   That deed was described on its cover page as a “Deed of Extension of Lease”.

[108]   However, Mr Hurd argued that notwithstanding that description, the terms of the document were such as to create a new lease.  Thus, clause 1 commenced:

The Lessor hereby demises and leases the Premises for an extended term commencing on 9 December 2003 and ending on 8 December 2009 ….

[109]   Mr Hurd  pointed  out  that  the  original  lease  in  its  terms  expired  on

8 December 2003.  It contained no right of renewal and as a result, at the close of

8 December 2003 it ceased to exist.   That is why, in clause 1 there had been new words of demise and lease.  Clause 4 of the deed of 25 February 2004 provided that the terms and conditions contained or implied in the original lease should continue to apply during the remainder of the term.  The term was the “extended term” provided for in clause 1.  Mr Hurd argued that the words “commencement date” in clause 4.1 must be the commencement date of what was effectively the new lease, namely

9 December  2003.    It  followed  from  that  that  the  unreasonable  withholding  of consent proviso in clause 4.1 had no application to the proposed assignment to the first defendant, because it was proposed in late September and early October 2005, and the request was responded to by the third defendant on 10 October.  All of those events fell within the first two years from the commencement date of the new lease created by the deed of extension.

[110]   The  argument  is  not  without  merit,  but  I  consider  that  s 110(1)  of  the Property Law Act presents a difficulty for it.  Although the parties have apparently agreed, by means of clause 4.1 of the lease, that the stipulation that consent should not be unreasonably held will only apply in the case of an assignment taking place within 24  months  after  the  commencement  date  of  the  lease,  there  is  no  such limitation in s 110(1).   It is, I think, distinctly arguable that because the apparent

intent of the 24 month provision is to enable the landlord to decline consent during that period, s 110(1) would apply during that period, and override the contractual provision.     It  applies  after  all  “notwithstanding  any  express  provision  to  the contrary”.  Although the point does not have to be decided in view of the conclusion I have already expressed on the inability of the plaintiff to sue the third defendant in damages, I tend to the view that s 110(1) would stand in the way of Mr Hurd’s argument based on the commencement date.

[111]     However, for the reasons I have already given,  the plaintiff’s claim  for damages against the third defendant must fail.  It sought no other relief against the third defendant, apart from costs.

The counterclaim

[112]   The second defendant claims against the plaintiff and Mr Hayter in detinue. He says that once the sale agreement had been cancelled, then the yacht agreement automatically came to an end.   He asserts that the plaintiff has wrongly detained “Integrity” and that the plaintiff and Mr Hayter have refused to deliver it to him.  In response, Mr Henry simply points out that the yacht has been held under a preservation order issued by the Court under r 331 of the High Court Rules.

[113]   The order was made by Faire AJ on Friday 28 October 2005.  It was in the following terms:

(a)       The plaintiff to as soon as practicable place the vessel on the hard at Half Moon Bay Marina where the plaintiff shall ensure it is maintained and preserved.

(b)       The vessel is to remain on the hard at Half Moon Bay where it is to remain until further order of this Honourable Court.

(c)       The Court  shall  determine  which  party  meets  the costs  incurred pursuant to this order.   Until this is determined the plaintiff shall meet the costs of keeping, maintaining and preserving the vessel on the hard at Half Moon Bay Marina.

(d)       That all parties may apply for further directions at any time. (e)   Costs reserved.

Application to be called on 30th November 2005 at 2.15 p.m.

Mr Henry pointed out (and Mr St John did not  demur) that the first  and second defendants elected not to appear on 30 November 2005, the date when Faire AJ envisaged  that  the  application  could  be  dealt  with  inter  partes.    For  his  part, however, Mr St John was critical of the fact that the application had initially been made ex parte and he submitted that Faire AJ had been misled by assertions that Mr Hayter had wrongly made in an affidavit  in support of the application about concerns that the yacht would be removed from the jurisdiction.

[114]   My determination that the sale agreement was properly cancelled by the first defendant on 14 October 2005, means that there was no proper basis upon which the plaintiff could assert any right to possession of “Integrity”.   It does not, however, follow that the second defendant has a valid claim against the plaintiff in detinue. There was a Court order pursuant to which the plaintiff was empowered, indeed required, to maintain the vessel “on the hard” at Half Moon Bay marina.

[115]   The essence of the tort  of detinue  is  the  detention  of property with  the intention of keeping it from the person lawfully entitled to possession.  The tort is an intentional tort with the consequence that the detention must be “consciously adverse to the rights of the other” (Todd, The Law of Torts in New Zealand (4th  ed., 2005). However, in the present case the retention of the yacht has been pursuant to the order made on 28 October 2005.  In these circumstances I consider that the plaintiff was

not detaining the yacht in a manner that was consciously adverse to the rights of the second defendant.   Rather, it was acting pursuant to and with the authority of the order.   Whilst the order remained in effect the plaintiff’s actions in relation to the yacht were not unlawful.  Even if the order is seen as having placed “Integrity” into the possession of the owner (and there must be doubt about that, since the plaintiff was not able to exercise the normal rights of possession in respect of it), for so long as the order remained in force it created a superior possessory right:   see Flack v Chairperson, National Crime Authority and Another (1997) 150 ALR 153 (FCA).

[116]   If there was incorrect information placed before the Court for the purpose of obtaining the order, then the appropriate remedy would have been an application to have the order set aside.  Alternatively, the second defendant could have opposed the continuance  of  the  order  when  the  inter  partes  application  was  listed  on  30

November 2005.   Neither step was taken and consequently the order remained in effect.   In the circumstances I consider that the counterclaim is misconceived and must fail.

[117]   In its counterclaim the second defendant asserted that it had been damaged by the retention of the yacht inasmuch as its value has decreased from $300,000 to

$230,000.   Further, it was claimed that because the yacht had  been held  by the plaintiff on the hard stand at the marina it was likely to have suffered damage as a result.   I did not hear evidence on those matters because of the orders made by Keane J restricting the trial to issues of liability in the first instance.  In view of the conclusion that I have reached about the cause of action on which the counterclaim was based, I do not see any basis upon which a damages claim can be sustained. However, the order made by the Court made the plaintiff responsible for maintaining and preserving the yacht.  Possibly, there might be a remedy available to the second defendant if there has been any breach of that order.  However, the matter was not pleaded on that basis.

[118]   Having  said  that,  despite  the  conclusion  that  I  have  reached  on  the counterclaim, the second defendant is plainly now entitled to possession of the yacht and I will direct that it is to be returned to the second defendant.

Result

[119]   For the reasons I have given the plaintiff’s claims against all three defendants have  not  succeeded,  and  there  will  be  judgment  for  the  defendants  against  the plaintiff.  I make an order that the yacht “Integrity” is to be released forthwith to the second defendant.

[120]   The second  defendant’s counterclaim  has also  failed,  and  the  plaintiff  is entitled to judgment on the counterclaim accordingly.

Costs

[121]   Costs should  follow the event, in the normal way.    The proceeding was placed in Category 2 by Faire AJ at the first case management conference on 21

February 2006 and that remains appropriate.   Band B should apply.   If the parties cannot agree on the quantum of costs I will receive memoranda within 21 days of the delivery of this judgment.